The first steps to protecting your charity against internal fraud

You may be surprised to read that fraud in charities is an underlying problem. Higher profile cases such as Birmingham Dogs Home, where the chief executive was imprisoned for stealing £650,000 from the charity, are thankfully few and far between.

The majority of chief executives and Trustees enter the charity sector to make a difference and help the charity, however, there are some people who unfortunately are not so trustworthy, and a charity needs to protect itself against the possibility of fraud.

There are some simple steps charities can take to reduce the likelihood of internal fraud:

• Ensure that more than one person has responsibility for the finances.
• Expense claims should be approved by a senior member of staff, and then approved by a member of the board – helping to minimise the possibility of false claims.
• Two people check any cash collections.
• Payments for larger amounts are approved by the board etc.

Simple processes can really make a difference and internal audits can help to highlight potential issues. We recently undertook an independent examination for a charity client and found that their cash recording did not make sense. Our client was adamant that the recording and the amount held was correct. However, after some discussion and investigation, the charity agreed that there was something wrong and it transpired that a member of staff was stealing monies.

If the charity simply had another person checking the records, and verifying this to the cash physically held, the fraud would have been avoided.

Our Charities team suggest that the first step to protect a charity from fraud is to identify what areas make them particularly vulnerable to fraud. Does the charity handle a lot of cash? Is one person in charge of all the finances? Does the charity have a shop that goods can be stolen from? Once you have identified the areas of particular concern, you can then take steps to minimise any potential fraud.

If you wish to discuss how to best protect your charitable business against fraud, please contact a member of our EQ Charities team via charities@eqaccountants.co.uk or contact one of our offices.